Forex FOREX PRO WEEKLY, June 15-19, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,713
Fundamentals

It is no doubts that major event of this week is Fed statement. As it has made an impact on assets performance through the whole week. Initially impact was not too strong, but within few days investors start to worry on Fed view on US economy and global recovery. When J. Powell said that Fed expects 6.5% US GDP drop this year and it is long run to go till pre-pandemic levels, it was sounding scaring a bit. Later UK GDP data was released, it was shocking with -20% of MoM GDP drop, putting UK economy back to 2002 level.

As a result, the accent of investors starts turning to longer-term view, out from current liquidity injections and rally on a stock market, that has stopped this week, by the way. And this longer-term view opens some facts telling that it is too early to celebrate...

The dollar extended losses, dropping to a fresh three-month low against a basket of major currencies on Wednesday after the Federal Reserve made no policy changes, as expected, and pledged to continue its asset purchases aimed at stabilizing a U.S. economy that has been ravaged by the novel coronavirus. The Fed also did not announce any measures to cap the rise of bond yields, as some has speculated. In a press briefing, Fed Chairman Jerome Powell said the committee did discuss controlling the yield curve but said its effectiveness remained an “open question.”

The Fed, in its statement, on Wednesday after a two-day meeting, repeated its promise of continued extraordinary support for the economy as policymakers projected a 6.5% decline in gross domestic product this year and a 9.3% unemployment rate at year’s end. It also promised to maintain bond purchases at “the current pace” of around $80 billion per month in Treasuries and $40 billion per month in agency and mortgage backed securities.

“This is consistent with what the market pretty much expected, that the Fed wouldn’t do anything,” said Marc Chandler, chief market strategist, at Bannockburn Forex in New York. Chandler had expected the Fed to announce a yield control policy, but thought that the U.S. central bank could announce it by the end of the summer.

He added that the Fed’s growth forecasts suggested a V-shaped recovery. Overall, Chandler said the Fed statement showed that the dollar is still headed lower.

In the first economic projections of the pandemic era, U.S. central bank policymakers put into numbers what has been an emerging narrative: that the measures put in place to battle a health crisis will echo through the economy for years to come rather than be quickly reversed as commerce reopens.

But later in the week, the dollar bounced against riskier currencies and the safe-haven yen hit a one-month high on Thursday as the U.S. Federal Reserve’s dour economic outlook spooked investors.

“The Fed met expectations, but at the same time it’s brought the focus back on the economy,” said Moh Siong Sim, FX analyst at the Bank of Singapore. “There’s also a sense that the rally has gone a bit too far too fast, and while economic numbers have been getting less bad it does not mean that it’s good.”

“It is a long road,” Fed Chair Jerome Powell said via video link on Wednesday. “We are not even thinking about thinking about raising rates.”

It was enough of a reminder of how deep the globe’s economic troubles are to take the edge off two euphoric weeks in financial markets, and sent investors out of stocks, away from riskier currencies and back in to bonds and the dollar.

“That’s been the follow-through, and it’s played into a broad rebound in the dollar,” said Rodrigo Catril, FX analyst at National Australia Bank in Sydney.

We warned previously that euphoria will not last too long. Market just can't drop for 50% without any consequences. And now investors gradually return back to reality out from the exhilaration of success. UK data brings us very important information as only UK publishes monthly data. And this data shows awful numbers. This makes analysts and investors stay caution on US perspectives as well.

As Fathom writes, this week, the National Bureau of Economic Research announced that the US had officially entered a recession in February 2020. We estimate the trough to be in April 2020, making this recession unusually short and sharp, and expect a similarly drastic ‘V-shaped’ recovery with output returning to 2019 levels sometime in the latter half of next year. Despite spurring the longest expansion since 1854, the recovery from the last recession, was sluggish and unspectacular.

Recent employment report which showed a net 2.5 million increase in nonfarm payrolls in May — a much better figure than either we (-6.5m) or the consensus (-8m) had expected. That means that the announcement of the recession may have arrived after clear signs that it was over. While it may go down as the shortest recession on record, it may also be the steepest. And the labour market has a long way to go to recover its pre-COVID level. It is not just the jobs report. A range of data now appear to be consistent with activity bouncing off low levels in May. The latest example of this was the NFIB survey of small business owners that pointed to an increase in optimism.

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A ‘V-shaped’ recovery is our central scenario and, with our econometric work suggesting that the spread of the virus is slowing for reasons other than the lockdown, we have increased its weight over the past three months to 60%. But it is far from the only possible outcome. There remains a risk that, as countries continue to ease restrictions, the virus returns with equal or greater vigour, and we experience a second wave. In the event that severe national lockdowns are re-imposed later this year, it will be hard to avoid a global financial crisis, on a scale similar to that seen in 2008/09. Bolstered by last week’s jobs numbers, equity investors appeared convinced that a rapid rebound was pretty much assured, propelling the S&P 500 into positive territory, year-to-date, and this despite the fact that the global economy had entered a recession deeper than any experienced in recorded time. Yesterday, and overnight, some doubt has crept in, and rightly so in our view.

It is still too early to judge what the long-term political consequences of COVID-19 will be. In the early stages of the crisis, most leaders around the world received a boost in popularity. This ‘rally around the flag’ effect appears to be waning in most places, with some notable exceptions including Germany and South Korea. Both countries have had world-leading COVID-19 responses. One leader who did not receive any such bump is the US president Donald Trump. Indeed, a series of polls shows him trailing the Democratic nominee Joe Biden nationally by double digits while others show him behind in key swing states including Florida, Michigan and Pennsylvania. Despite a polling deficit, the betting markets had continued to price the incumbent as more likely to win November’s race for the White House. That has changed in recent days, and Joe Biden is now marginally favourite to win. There are still five months to go, and so it is too early to have strong conviction. But for now, Biden is the frontrunner.
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Our final chart presents the distribution of possible outcomes for the S&P 500, as we see it, in the form of a fan chart. A ‘V-shaped’ recovery for the global economy is the most likely outcome, but it is far from assured, and until the middle of this week, equity investors had seen it as the only game in town. Equities are about as likely to fall as to rise over the next year or two, in our judgement.

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Covid update

Fears of a second wave of COVID-19 infections shut six major food markets in Beijing on Friday, while India, which opened up this week, recorded a record daily increase and half a dozen U.S. states said their hospital beds were filling up fast. Health officials worldwide have expressed concerns in recent days that some countries grappling with the devastating economic impact of lockdowns may lift restrictions too swiftly, and that the coronavirus could spread during mass anti-racism protests.

“We must be ready to roll back relaxation of measures if needed,” the European Union’s health commissioner Stella Kyriakides said after urging its 27 members to plough ahead with testing the population as they reopen schools and businesses.

“There is talk of when the second wave will hit, but we have not yet been able to overcome the first wave,” Cavit Isik Yavuz, part of the coronavirus research team at the Turkish Medics Association said.


While new infections are slowing in most of Europe, health experts see a moderate to high risk that post-lockdown rises may warrant new restrictions.
The European Centre for Disease Prevention and Control (ECDC) predicted a moderate acceleration across Europe in coming weeks, which could place healthcare systems under stress if not checked rapidly. Government control measures could check and reverse upward trends within two to three weeks, it said.

Officials have expressed concern the virus could spread among the tens of thousands who have crowded together in Europe’s big cities to demonstrate against racism after the death in U.S. police custody of George Floyd. “Mass events could be a major route of transmission,” said Martin Seychell, a health official at the EU Commission.

In about half a dozen U.S. states including Texas and Arizona, the number of coronavirus patients filling hospital beds is rising, fanning concerns that the reopening of the U.S. economy may unleash a second wave of infections. Alabama, Florida, North Carolina, South Carolina, Oregon and Nebraska all had a record number of new cases on Thursday.

“We are starting to see very worrying signs about the course the pandemic is taking in cities and states in the U.S. and around the world,” he said. “When you start seeing those signs, you need to act fairly quickly.”

According to rt.live, the estimated reproduction number (R) is above 1 in 13 states. Rising cases in Arizona, Florida and Texas are a particular worry. And there remains a higher risk in the US than almost any other advanced economy that rising infections could either prompt a return to lockdown or cap the economic recovery due to fears about the virus.

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CFTC Data

Speculators’ net bearish bets on the U.S. dollar grew in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net short dollar position was $9.51 billion for the week ended June 9, compared with a net short position of $8.17 billion for the week before that. The net short position was the largest bearish position speculators have held in six weeks, the data showed.

Recent numbers show interesting information on EUR sentiment. It is no doubts, bullish as open interest has increased on a background of solid rising in speculative long position. Hedgers have added more shorts, worry that EUR could climb higher. Take a look - it seems all spreading position has turned to longs...

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Source: cftc.gov
Charting by Investing.com



In a dry residual
of all these facts we see that concern is rising. Basic scenario on Fathom's S&P 500 chart suggests high probability of deep drop, even to new lows, although they call it as "V-shape". All positive scenarios are based on suggestion of no covid relapse in this year, but how reliable they are? First statistics that we've got in April showed recovery, but now we get May data, and UK shows that worse things are still ahead. Besides, I start to suspect that we have USD devaluation, inflation. The rise of commodities and stock market is a hidden inflation, guys. You can't just print 10 Trln. dollars and get no effect. Now population doesn't feel it yet, because inflation is not come to retail prices. It stands out of them by far. But soon, when all these liquidity appears in the people hands - prices start to rise. Inflation just has to come through the whole chain - from commodities price rising into companies' expenses and then into retail prices. Usually this way takes about the year. But rally on stock market already shows that this process is under way. Recall, that a lot of unemployment benefits already come to stock market. Now it takes the signs of fever.

Unrest in US that now reaches Europe also brings nothing good. It is naive to think that this is occasion and purely due "Black live matters". This is well planned and paid action. Easy using of common sense tells that it is financed by Democrats - they are the only who gets advantage of this. In EU they also shows who are the master, trying to scare political elite and force them to act properly.

Economy crisis, epidemic and social unrest is a deadly combination for any political force. Thus, D. Trump stands in difficult position and Democrats take all efforts to bring his government toppling.

From the economy point of view, it is long-term risk if rates stay too low for too long as it has direct relation to productivity. There is a positive relationship between company failures and productivity growth, as resources are reallocated from less-productive to more-productive firms. Now by government's support measures depressed and loose companies have chance to stay on a surface. Furthermore, the corporate failure rate moves in line with the policy rate. Lower interest rates mean lower company failures, and therefore lower productivity growth. At some point, by prolonging their existence without any hope of a brighter future, government help may end up preventing a needed reallocation of capital and workers that risks harming productivity growth. If that is the case, the short and sharp recession could be compounded by a long and slow recovery.

One clear impact on the international stage has been an increase in tensions between the US and China. The Trump administration has criticised the Chinese government for not being transparent about the virus at the onset of the pandemic. Beijing has forcefully pushed back against those claims, and has exacerbated friction by moving forward with a controversial security law that many think would challenge Hong Kong’s autonomy. All told, relations between the world’s two superpowers have deteriorated, leaving big questions around January’s Phase One trade deal. With the Chinese economy weak, targets signed as part of that agreement that were previously exceedingly ambitious now appear almost certain to be missed. Indeed, a small increase in gross trade flows at the beginning of the year has partially unwound. And the economic relationship between the US and China appears more likely to shrink than grow, irrespective of who is in the White House next year. There are reports that the UK, too, wishes to reduce its reliance on Chinese imports. Whether this decoupling spreads to other European partners, particularly the EU remains a big unknown in the years ahead.


In current situation it is difficult to put the bet on USD appreciation as in short-term as in long-term. Still situation is changing rapidly. The winner will those who extract more from the difficulties of opponent. Say, if EU leaders finally will find the compromise a put strong efforts on economy recovery - EUR could show good performance. Alternatively, if no EU consensus will be found and US start to press EU with sanctions and other measures, continue support unrest in EU, especially if democrats will take the lead - EUR could be depressed. So, no final shape is set already and we're in dynamic picture. But now it seems that US is coming through difficult times.

Yale's university analyst, Stephen Roach writes in his Bloomberg column that USD could drop as much as 35% within 1-2 years. And it is difficult to argue.
"As the economic crisis starts to stabilize, hopefully later this year or in early 2021, that realization should hit home just as domestic saving plunges. The dollar could easily test its July 2011 lows, weakening by as much as 35% in broad trade-weighted, inflation-adjusted terms."

NEXT WEEK EVENTS

BOE
All central banks are battling coronavirus damage but the Bank of England also has Brexit to contend with. April’s 20% GDP slump leaves Britain’s economy the same size as in 2002; this year could bring the biggest contraction in 300 years. The BOE is expected to give itself another 100 billion pounds in firepower at its June 18 meeting, adding to the expansion announced in March. Some reckon it could stretch to 200 billion pounds.

What about letting interest rates go negative? Unlikely — the BOE says it needs more time to weigh that.

Unfortunately, policy makers don’t know if coronavirus cases will surge again or whether the government can reach a trading arrangement with the EU by Dec. 31. If Britain is cast adrift without a trade deal, all bets are off on the economic outlook - and indeed on how much QE the BOE will eventually have to do.

EU tick tock

The clock is ticking again for the European Union, which has two pressing matters to deal with.

First Brexit. On June 15, Britain and the EU will attempt to revive stalled talks on post-Brexit ties. There’s been little progress on a free-trade agreement and little time left to extend the end-2020 deadline for an deal.

Then, on June 18-19, EU leaders will debate a recovery fund to repair COVID-19 damage. Most members support the European Commission proposal. But a quartet dubbed the “Frugal Four” - Netherlands, Austria, Denmark and Sweden — remain sceptical. For the proposal to succeed, it must get the nod from everyone. Any delay will be a major setback for the euro and southern European bonds.

2nd & 3rd
Data from the world’s second and third-largest economies will soon tell us how large a gap there is between hope and reality. China releases retail sales, industrial output and house price data, while Japan has trade figures and a central bank meeting.

Technicals

Weekly

This week market spends in the range that makes no impact on monthly chart and lets us to skip its update as nothing has changed there. This was expected as last week we said that EUR stands at weekly overbought and hardly is ready for new achievements. Indeed, here on the weekly chart we could see how weekly overbought and strong K-resistance area hold upside action, despite that it has strong momentum.

It means that in short-term, on daily chart it is not good moment for taking long position right now as deeper retracement is needed.
eur_w_15_06_20.png


Daily

We haven't got bullish grabber on Friday as price has closed below MACDP line. It means that we do not have 3-Drive pattern on 4H chart that we've discussed as well. With some delay but EUR still has shown downside acceleration that we were waiting a bit earlier. Anyway, this is also good for us and now we could consider our first trading setup B&B "Buy" trade from 1.1187 level.

Our major level for taking longer-term positions is 1.11 K-support.
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Intraday

Here we could see that EUR hits our XOP target and even passed a bit lower but price has not hit 1.1187 Fib level. It means that B&B is not started yet. On the chart we see acceleration right to XOP target, which means that we could get larger extension target before B&B starts to work. Thus, we could consider AB=CD target (blue lines) with OP right around daily Fib support. This is what we will keep an eye on Monday.

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Tryingtrader

Sergeant
Messages
193
A Good international analysis Sive, I do agree there is more upheaval to come in the political and financial area. There is no bad situation that politicians can't make even worse! We can only keep a watchful eye for our opportunities. Many thanks again for your excellent guidance and analysis.
 

Sive Morten

Special Consultant to the FPA
Messages
14,713
Morning guys,

As there are a lot of requests to update AUD - let's take a look at it. Right in the beginning I would say that this is not time to go long on AUD. Take a look at monthly chart price stands at K-resistance area. In fact, we have monthly B&B "Sell" pattern with target around 0.6 area. On weekly chart price is overbought as well:
aud_m_16_06_20.png


On daily market stands in AB-CD extension and XOP has not been hit yet. It means that final spike should happen, before upside action will be over. Then, theoretically, market should start preparing background for reversal.
aud_d_16_06_20.png


On 4H chart I show just one of the possible scenarios how it could happen:
aud_1h_16_06_20.png


But, whatever patterns will be formed here, we could definitely say - current moment is not good for taking long position. Bulls should wait for deep pullback, while bears should wait for reaching of XOP and appearing clear bearish patterns. Long-term traders could consider B&B "Sell" trade on monthly chart. It probably demands stops above 0.7150 K-area. Target should be around 0.6. As we do not trade so big scale - we intend to go step by step, relying on daily and intraday patterns.
 

Sive Morten

Special Consultant to the FPA
Messages
14,713
Morning guys,

Finally we could focus on EUR. And situation on EUR stands tricky, although at first glance it doesn't look so. In two words - upside spike now is very probable. Within 4 sessions market was not able to reach even nearest 1187 Fib support level, and coiling around the pivot. Thus, we do not have B&B "Buy" but door for DRPO "Sell" is open.
As we know that EUR stands at weekly K-resistance and overbought - chances that we get breakout and upside continuation are minimal. Hence, it will be a kind of W&R, false breakout, that is friendly to DRPO pattern. For daily trading plan it brings nothing important, because anyway we wait price at Fib support levels. But how it will get here, we do not care much. But this stuff means a lot for intraday traders:
eur_d_17_06_20.png


On 4H chart we have H&S pattern. We've talked about it. But it also has some flaws. First is - bullish grabber right at the neckline. Second - no downside breakout. At most important moment, when price has to drop through the neckline - it suddenly stopped. This is not good. In fact, if you draw the neckline correctly, you'll see that price has not touched it.
Sudden upside action here stands in contradiction to the market mechanics of H&S pattern:
eur_4h_17_06_20.png


The maximum that we could accept is pullback to 1.13 Agreement resistance and appearing of 222 Sell pattern. Although even now I think, that H&S probably will fail, just to not follow the gambling, we could:
1. Move stops at breakeven right now;
2. When price hits Agreement resistance around 1.13 - wait for drop out from it and close 50% of the short position;
3. Move stops on the rest half just above 1.13 Agreement.
That's approximate trading plan, that might be useful if you have profitable short position.
eur_1h_17_06_20.png
 

Robban68

Corporal
Messages
98
Morning guys,

Finally we could focus on EUR. And situation on EUR stands tricky, although at first glance it doesn't look so. In two words - upside spike now is very probable. Within 4 sessions market was not able to reach even nearest 1187 Fib support level, and coiling around the pivot. Thus, we do not have B&B "Buy" but door for DRPO "Sell" is open.
As we know that EUR stands at weekly K-resistance and overbought - chances that we get breakout and upside continuation are minimal. Hence, it will be a kind of W&R, false breakout, that is friendly to DRPO pattern. For daily trading plan it brings nothing important, because anyway we wait price at Fib support levels. But how it will get here, we do not care much. But this stuff means a lot for intraday traders:
View attachment 54820

On 4H chart we have H&S pattern. We've talked about it. But it also has some flaws. First is - bullish grabber right at the neckline. Second - no downside breakout. At most important moment, when price has to drop through the neckline - it suddenly stopped. This is not good. In fact, if you draw the neckline correctly, you'll see that price has not touched it.
Sudden upside action here stands in contradiction to the market mechanics of H&S pattern:
View attachment 54821

The maximum that we could accept is pullback to 1.13 Agreement resistance and appearing of 222 Sell pattern. Although even now I think, that H&S probably will fail, just to not follow the gambling, we could:
1. Move stops at breakeven right now;
2. When price hits Agreement resistance around 1.13 - wait for drop out from it and close 50% of the short position;
3. Move stops on the rest half just above 1.13 Agreement.
That's approximate trading plan, that might be useful if you have profitable short position.
View attachment 54822
Thanks Sive.
Didn’t the B&B hit the 3/8 last Friday at 1.122,( the 3/8 from 1.087-1.143). Yesterday it completed the 5/8 pullback as well. Since it didn’t manage to form a Daily bullish grabber last Friday I assumed it will returned to a new low after it pullback to the 5/8. Or I’m calculate the B&B from wrong low (1.087)?
 
Last edited:

Sive Morten

Special Consultant to the FPA
Messages
14,713
Morning guys,

Despite EUR is trying to move lower, but overall bearish context looks fragile and we have some doubts that sudden spike could happen. All markets right now freeze and behave too quiet, as waiting for something.

On daily chart overall picture stands the same. As we've said yesterday - EUR is too long going to nearest Fib support level and can't reach it within more than 5 sessions already. It makes us think that before deeper retracement we could get upside spike. At the same time we do not believe in continuation and suggest that this will be W&R, fake breakout. This view lets us to suggest appearing of DRPO "Sell" pattern here:
eur_d_18_06_20.png


On 4H chart price action around the neckline, when H&S already stands in place also looks curious. EUR is slowing with downside breakout. Today we also get minor bullish divergence. If miracle still happens and EUR drops - our target is 1.1145 OP area and Agreement on daily chart:
eur_4h_18_06_20.png


On 1H chart our setup has worked accurately. Market has dropped precisely from Agreement area, forming "222" Sell". Today situation could repeat. This time we have K-resistance and another minor "222" Sell". You could think on more stop tightening, when price drops out from the K-area. If market breaks it up and reach 1.13 again - that could be turning moment. In general, we have not only H&S but wedge pattern as well...
eur_1h_18_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,713
Morning folks,

Today we could take a look at GBP. EUR hopefully is creeping lower, so, may be our OP will be hit...

On GBP we have long-term bullish setup with potential target around 1.32-1.33. Once price has hit COP and Agreement resistance - it stands in downside retracement. Now it seems that this retracement could be over around K-support area on daily chart that also agrees with monthly pivot. Pivot, btw, also will be good indicator of sentiment:
gbp_d_19_06_20.png


On 4H chart we have clear AB=CD pattern with OP that stands in the same area of K-support, making Agreement with it. Potentially our entry pattern here is "222" Buy:
gbp_4h_19_06_20.png


Finally, downside action could be finished by different patterns. Here are just two of them. It might be butterfly, if action will be straight down, or, it might be 3-Drive "Sell". For bullish setup it makes no difference as both patterns have the same target, but for intraday traders it could make sense.
Personally, I'm tending to idea of butterfly, due some acceleration down to 1.27 target.
gbp_1h_19_06_20.png


That's being said - let's wait a bit more and next week hopefully we will get our entry point.
 
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